Video: They’re still not listening to Rick Santelli

posted at 10:05 am on August 5, 2011 by Ed Morrissey

Want to see a microcosm of everything that’s been wrong with American economic policy over the last couple of years? Watch this exchange between Ezra Klein and Rick Santelli from earlier today on MSNBC’s Morning Joe. Santelli, whose February 2009 on-air rant over fiscal and economic mismanagement inspired the start of the Tea Party, gets exasperated with Klein after the Washington Post columnist talks about money moving around “unfairly”:

The entire problem with this economy is the notion that some people have of “unfairness” in markets. In fact, that’s how we got here in the first place. Government intervened to correct what was seen as “unfairness” in the housing market by guaranteeing risky loans, which set off a housing bubble that left the economic system in ruins. We got Obamanomics as the end result of that, which is all about “fairness,” and which has utterly failed to produce growth thanks to the arbitrary and punitive ways it treats investors.

Furthermore, despite Klein’s citation of two authors he claims has done “the best work” on this crisis, Klein is advocating for a policy which has already failed. He wants the Fed to intervene by creating inflation, which is exactly what they did with their two rounds of quantitative easing. Not only has that failed to produce actual growth, as the latest GDP numbers show, it threatens to escalate a global debt crisis while weakening the value of assets for most Americans. The Fed has no more options to play.

We’re not seeing growth because of the hostile environment for investors, and a lack of consumer demand related to high unemployment. We could solve those tomorrow by reducing regulation (especially the arbitrary ObamaCare legislation that makes risk calculation nearly impossible), unfettering American energy exploration and extraction to create jobs and lower energy costs, and reform the tax system to put all investors on an even playing field and reduce the corporatism that drags down small-business creation and innovation. We don’t need social engineers tinkering with the economic system to achieve their notion of “fairness” — we need actual economic growth, which the social engineers have proven completely incompetent at delivering.

An increase in money supply has an inflationary effect (as indicated by an increase in the annual rate of inflation). There is a time lag between money growth and inflation, inflationary pressures associated with money growth from QE could build before the central bank acts to counter them. Inflationary risks are mitigated if the system’s economy outgrows the pace of the increase of the money supply from the easing. If production in an economy increases because of the increased money supply, the value of a unit of currency may also increase, even though there is more currency available. For example, if a nation’s economy were to spur a significant increase in output at a rate at least as high as the amount of debt monetized, the inflationary pressures would be equalized. This can only happen if member banks actually lend the excess money out instead of hoarding the extra cash. During times of high economic output, the central bank always has the option of restoring the reserves back to higher levels through raising of interest rates or other means, effectively reversing the easing steps taken.

The GDP is flat at 1.3 so it’s obvious the economy hasn’t grown at a rate to offset inflation created by QE.

Coburn: If Congress doesn’t end its profligate spending and fix the personal and corporate tax codes, the resulting debt load will force the government to start printing “fiat money” in order to meet its obligations. That will destroy accumulated capital among all classes in the US and significantly lower living standards for the next generations of Americans. We don’t have long to act before Washington begins imposing “financial repression,”

If we don’t suffer inflation – won’t we suffer what Tom Coburn and Glenn Beck warned. financial repression. We have been warned.

Printing fiat money is inflation. If you don’t have enough money to buy a loaf of bread but the same amount of money you have now bought that loaf last week, the loaf of bread increased in cost but the value of your money went down.

For what it’s worth, Reinhart and Rogoff’s book is excellent. It’s called “This Time It’s Different” and the basic premise is that no – it’s not different this time. The book is neither liberal or conservative but merely a statistical look at major financial crises throughout history, what appeared to cause them and how governments handle them. If anything, they indict the current financial approach.

To the lefts mind set a two hundred and fifty pound man wanting to be a jockey in the Kentucky Derby and not considered for the job is just not fair. The worlds full of arm chair quarterbacks and couches along with people that think a person with any kind of degree is capable of running a business.

as if people who go into business are some sort of naive innocents unaware of the game rules and the risks they are taking…it’s ridiculous…what is unfair is not is to have the govt forcing bank entities to give loans to people whom they shouldn’t have in the first place,collaspse a whole economy system overnight and then forcing he taxpayer to pick the tab (see ‘too big to fail’), all in the name of ‘social justice’…this type of ‘social justice’ have done more harm to out economy than ‘money moving unfairly’ ever will…

Much of the inflation has been in commodities. They got hit pretty good too as money went from them and equities to cash and Treasurys.

I saw a report this morning that $2.5 Trillion in value came out of the world stock markets. Interestingly, the US recently has a need to borrow another $2.5 Trillion. Hmmmmmmmmmm…

Politicians don’t ask where the money is coming from that they borrow. But of course, it comes from investors. So it behoves the government to see a stampede out of equities and into Treasurys. It ain’t called the Safe Haven for nothing. And just when you worry about what a raise in yields would do to the deficit, because of the rush to th exits on Wall Street yields crater; the 2-year treasury now pays one quarter of one percent. Nice doin’ bidness wit ya.

Government wants to chase money from stocks to treasurys. But the it has to follow up with a way to inflate stocks to make the economy seem to improve, which is where QE3 will come in. Enter stage right, we’ve gotten just this morning news of massive QE in Europe to purchase EEU member’s outstanding debt. Naturally, we’re going to respond with our own printing to buy our own debt (and some of theirs), but just a bit less to keep bucky looking good against all other currencies.

Everyone reading Hot Air needs to understand this golden triangle: 1)chase money out of equities, 2) sop it up at low interest to fund new debt, then 3) print to inflate prices of equities. Wash, rinse, repeat.

He (Klein)attended the University of California, Santa Cruz but later transferred to the University of California, Los Angeles, from which he graduated in 2005 with a B.A. in political science. While at UCLA, he applied to write for the Daily Bruin but was rejected.[2]
…

Klein started his first blog in February 2003.

His Resume:
HE COULDN’T GET A JOB ON HIS COLLEGE NEWSPAPER SO HE STARTED A BLOG.

Then MSNBC hired him to pontificate on air.

That’s like giving someone a job at NASA because they flunked math in college.

The whole show sux I caught it by mistake and was reminded why I watch the mornig taffic instead. John Kerry as a followup weakly trying to reinforce ezra and the other kool aid drinkers who didn’t seem to be in reality. Joe looking for a trite line. Santelli just shaking his head in disbelief. Click.

I never listen to snot-nosed punks who find the text of the Constitution “confusing.”

Good piece, Ed. I agree with everything you said we should do and I wouldn’t stop there. The necessity of reforming entitlements is absolute. And I don’t mean BS reform like raising the retirement age to 67 over 20 years.

I have read that politicians love inflation, because it’s an invisible tax.

Dr Evil on August 5, 2011 at 12:58 PM

Only when the newly minted money comes out under their control (like when the fed buys T bonds). Banks are who really like some predictable level of systematic inflation, because it forces people to put their money in the banks (or lose value) and means that the banks can pass the cost of malinvestments back to depositors by setting the interest rate lower than the inflation rate.

if Klein thinks the Fed can further debase the USD through further quantitative easing, he isn’t considering the Japanese plight who just intervened in their currency, an admission that the Japanese strength and USD weakness is getting them in trouble. So now we have an Euro crisis, a Japanese crisis and a US government debt crisis while Democrats are hailing the “balance” needed by including taxes. If this all doesn’t start a bear market, well, I would like to see what would.